The Federal Reserve is preparing a proposal to raise the asset thresholds that dictate when large banks must comply with stricter regulatory requirements. This change may allow certain banks to avoid costly regulations and could promote industry consolidation, according to reports from Reuters.
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The Fed plans to reindex the cutoff points for stress tests and heightened capital and liquidity requirements to better reflect inflation and overall economic growth. Sources familiar with the deliberations suggest that an official proposal may be released later this year, though a Fed spokesperson did not comment on the matter.
Currently, banks are subjected to increased oversight once they reach $100 billion in assets, with further intensifications at $250 billion and $700 billion. These thresholds were established in 2019. The Fed's proposed adjustments could raise the upper limit closer to $1 trillion while increasing the lower threshold to around $150 billion. Using nominal GDP as a basis for reindexing—an approach suggested by Fed Vice Chair for Supervision Michelle Bowman—might set the highest threshold at approximately $960 billion and the lower threshold at about $150 billion.
Among the banks that may benefit from a higher top threshold are U.S. Bancorp, Capital One, PNC Financial, and Truist, which currently hover near the $700 billion mark. This adjustment could allow them more flexibility to expand without triggering the most stringent Fed oversight. Similarly, banks such as Western Alliance and Zions could surpass the $100 billion threshold without assuming the full regulatory burden attached to that level. Additionally, Pinnacle Financial Partners and similar lenders with assets ranging from $100 billion to $150 billion could see some regulatory requirements reduced.
A spokesperson for U.S. Bancorp remarked that the substantial growth of the U.S. economy over the past seven years warrants a reevaluation of regulations, suggesting that updated rules could enhance bank lending capacity and foster greater competition for consumers and small businesses.
This initiative is part of a broader reform effort spearheaded by the Trump administration, including revisions to capital rules and other elements of the Fed's supervisory framework. According to S&P Global Market Intelligence, banks with assets between $50 billion and $700 billion have completed only 33 acquisitions in the past decade, with just seven occurring in the last year.